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Howell: Big crops, buildup in stocks knock cotton limit down

A far larger U.S. crop forecast than expected, sharply higher global production and a buildup in world stocks outside China sent cotton futures into a tailspin as the marketing week ended.

December lost 205 points for the week ended Thursday to close at 68.11 cents, its lowest finish since July 19 when it also settled at that price. It closed the final session down the 300-point daily limit after hitting a high of 71.20 cents on Wednesday, highest since mid-June.

The USDA’s long-awaited first survey of U.S. 2017 crop prospects pointed to production of 20.55 million bales, up 1.55 million bales from last month and the largest in 11 years.

Lower beginning stocks, which were cut 400,000 bales to 2.8 million on an increase in final 2016-17 exports to 14.92 million bales, partially offset the larger crop. Exports for 2017-18 were raised 700,000 bales to 14.2 million, while domestic mill use fell 50,000 bales to 3.35 million.

Ending stocks are projected at 5.8 million bales, a million bales above expectations. The USDA crop forecast topped expectations of 18.8 million bales.

If realized, the ending stocks would be the largest since 2008-09 when the carryover was 6.34 million bales. The projected stocks-to-use ratio of 33 percent, up from 31.4 percent foreseen last month, also would be the highest since 2008-09 when it was 37.7 percent.

U.S. all-cotton plantings remained at 12.06 million acres and the area for harvest was lowered to 11.05 million acres from 11.18 million forecast last month. This reflects an abandonment rate of 8.4 percent.

All-cotton yields are forecast to average 892 pounds per harvested acre, up from 816 pounds estimated last month, 867 pounds last season and the five-year average of 839 pounds.

The forecast range for the marketing year average price received by producers of 55 to 67 cents per pound was narrowed a cent on each end, with the midpoint unchanged at 61 cents, down from 68 cents in 2016-17.

Upland production in Texas is estimated at 8.8 million bales, 9 percent higher than in 2016, off yields of 741 pounds, down from 748 pounds last year. Acres for harvest of 5.7 million, up 10 percent from last year, reflect an abandonment of 900,000 acres.

Production on the High Plains is pegged at 5.23 million bales, up from 5.118 million in 2016 and the largest since 2010. Yields of 733 pounds would be down from 740 pounds last season. The area for harvest of 3.425 million acres off plantings of 4.055 million acres reflects an abandonment rate of 15.5 percent, up from 9.6 percent last year.

Globally, production prospects rose by 1.95 million bales on the month to 117.31 million, with ending stocks rising 1.36 million bales to 90.09 million. Ending stocks in the world outside China now are expected to rise by 9.15 million bales from beginning stocks to 50.74 million.

The crop forecast for China rose by 500,000 bales to 24.5 million, mainly on larger area, and mill use for the world’s largest cotton consumer also rose by 500,000 bales to 38.5 million.

World cotton consumption is forecast up 375,000 bales from a month ago – largely because of the increase for China – to 117.4 million. At 3.3 percent, growth in world cotton consumption in 2017-18 is projected at its highest rate in five years.

World ending stocks, up 100,000 bales from 2016-17, are estimated at 76.7 percent of expected consumption, compared with 75.8 percent forecast in July and 79.2 percent in 2016-17.

On the current crop scene, U.S. cotton conditions improved slightly during the week ended last Sunday, with good to excellent up a percentage point to 57 percent and up from 48 percent a year ago, USDA’s crop progress report showed.

Fair dipped a point to 29 percent and poor to very poor remained at 14 percent, compared with 36 percent and 16 percent, respectively, last year. The DTN cotton condition index, based on the USDA report, gained three points for the week to 139, up from 121 last year.

Ninety-three percent of the crop was squaring, behind 95 percent last year and the five-year average of 96 percent. Fifty-eight percent was setting bolls, 10 points behind a year ago and the average. Boll opening at 8 percent was a point behind last year but a point ahead of average.

U.S. upland cotton growers had contracted about 8 percent of their expected 2017 acreage by Aug. 1, up from 4 percent a year earlier, according to informal surveys by USDA’s Agricultural Marketing Service.

Contracting by regions has amounted to 13 percent in in the Southeast, up from 8 percent last year, 10 percent in the Delta, about even; 6 percent in the Southwest, up from less than 1 percent; and 4 percent in the West, down from 5 percent.

These estimates don’t include cotton consigned to marketing organizations but do include cotton contracted with them.

The market traded quietly within a 185-point range during the reporting week and ended with a small 48-point gain, basis December. Index funds trimmed their net long position 819 lots to drop it to 72,432 lots, while traders with non-reportable positions bought 636 lots to pare their net short position to 3,340 lots.

Commercials sold a net 2,624 lots, adding 3,118 shorts along with 494 longs to raise their net short position to 2,624 lots to 89,149. Combined open interest increased 1,206 lots to 264,963.

Duane Howell is retired farm editor of The Avalanche-Journal. He writes daily cotton market reports for DTN/Progressive Farmer. His e-mail address is duane.howell@sbcglobal.net.